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Aleem N. Hussain
This 5,854-square foot home was once the vacation home of Khalil bin Laden, brother of Osama bin Laden. Khalil purchased the home in 1980 for $1.6 million as a modest wedding gift for his wife. The old bin Laden spot sat abandoned for five years in the years after 9/11, when Khalil and his wife had boarded a Saudi jet and headed off to sweet safehaven. Khalil finally sold the sucker, during the mid-2000s Florida real estate boom, for $4,043,800. The new owner, Aleem Hussain, the majority holder of a development company, was sentenced to seven years in prison in 2007 for running a $9 million dollar real-estate scam. Soon after it was foreclosed upon, and then snatched up by a local investment group. ---- The FBI on Tuesday arrested the majority owner of Main Street USA Inc., an Orlando company that collected millions of dollars from investors for Central Florida real estate deals before filing last month for bankruptcy court protection. The agency said Aleem N. Hussain, a Guyana native, was taken into custody at Hartsfield-Jackson Atlanta International Airport while waiting for a plane flight out of the country. According to the criminal complaint, about 100 investors were told their money would be placed in a real estate investment trust and insured by the Federal Deposit Insurance Corp. The complaint estimated that $8 million had been raised from the investors. R. Scott Shuker, a lawyer representing Main Street USA and two subsidiaries in the Chapter 11 bankruptcy filing, recently told a bankruptcy judge in Orlando that no REIT was ever set up legally and the money was not protected by the FDIC. Main Street USA and its subsidiaries, PYC Development One LLC and PYC Development 4 LLC, last year bought the Waldengreen Apartments in southwest Orlando and converted the complex to a condominium. An office building in Kissimmee, which served at one point as company headquarters, also was purchased, as were 18 acres of vacant land in west Orange County. Shuker told the bankruptcy court that Hussain is 70 percent owner of Main Street USA. Alan Randel is 30 percent owner and, as the company's sole director, hired Shuker to file the Chapter 11 petition for bankruptcy court protection. When he’s done serving his time, Hussain — a Guyana native — is expected to be deported. ---- Monday, July 10, 2006: When Aleem Hussein says that his company is one of the fastest-growing companies in Central Florida, he may have a legitimate claim to back that statement up. Main Street USA Inc., a real estate development and mortgage company with offices in Orlando, Kissimmee and Clermont, has grown revenue to $40 million in the last 18 months and added more than 130,000 square feet of office space. The company was founded in 2001, but it has only been branded as Main Street USA since 2004, when co-owner Hussein, 42, bought into owner Alan Randel's company and the partners made some changes. Hussein says a year and a half ago the company started with a few employees in a rented 1,200-square-foot space in downtown Orlando. Today, they have added a 20,000-square-foot office in Kissimmee and a 5,000-square-foot office in Clermont, own about $140 million in real estate and have 180 employees. The company has four separate affiliates: *No Fee Realty Services, which has no commissions; *For Sale By Owner Company, which has no fees; *Investors Choice Realty; *First Avenue Realty, a traditional full-service residential realty branch. Hussein says First Avenue and No Fee Realty are neck-and-neck in sales volume, with only $18,000 separating the two. In 2005, sales volume for all the companies surpassed $3 billion, and Hussein projects a 200 percent growth rate this year. The company's mortgage division is affiliated with 126 financial institutions such as Bank United, Bank of America and Washington Mutual. And the company's real estate divisions employ more than 100 salaried Realtors. The company provides property management services and holds an average of three seminars per week that teach people the do's and dont's of the business and how to pay off a $200,000 mortgage in five years or less without increasing their payments. "We focus our energies on dealing with a client face-to-face," Hussein says. "In turn, those people want to do business with us." Angel Caro, an individual investor, has bought three condominiums through Main Street USA and invested more than $700,000 through the company. "They have taught me a lot, and I have referred my friends and neighbors their way," Caro says. "The condos are retirement investments that I will sell down the line." The company's employer benefit programs provide financial outlines and guidance for employees of companies such as Universal Studios Orlando, a Walt Disney World union and Florida Hospital. Those employees can benefit from lower interest rates, home purchase assistance and many other related services at no additional charge. Hussein, who was training to become an orthopedic surgeon before switching careers, says his new profession is no different than his former career path. "It's the same concept," Hussein says. "If you give people the right medication, you can treat them and make them healthy. In finance, there is nobody there to give you that help and that's where we step in." Hal Warren, senior director at the Orlando office of Cushman & Wakefield Apartment Brokerage Services, sold a 278-unit MetroWest rental apartment complex called Walden Green to Main Street USA last year for $28 million and is in the process of selling another apartment complex to them for $38 million. "They bought our property, and they did what they said they were going to do," Warren says. "In this business, that's all you can ask for, and we look forward to working with them in the future." ---- The Kissimmee company whose owner sits in jail, accused of a multimillion-dollar real-estate fraud, misused its corporate sponsorship of the Orlando Magic to lure local investors to some of its sales presentations, Magic officials and others say. Main Street USA Inc. mailed fliers to area residents earlier this year extending an invitation from the Magic, “in association with” the company, to investment seminars at RDV Sportsplex, the basketball team’s training center and executive offices in Maitland. Drawn by the offer of a free dinner, prospective investors watched a video introduction by Magic coach Brian Hill and were rewarded with lower-bowl tickets to upcoming Magic games. After hearing the sales pitch, at least some of those who attended the June dinners declined to invest in Main Street USA, having decided that it all sounded too good to be true. They were right The Magic say the team’s marketing agreement with Main Street USA did not include any team association with the company’s investments. Hill’s videotaped appearance was a standard perk offered corporate sponsors, the team said. And the company’s sponsorship was terminated, team officials say, after they discovered that Main Street USA had used the Magic’s name and logo in promotional material without their approval. Aleem Hussain, Main Street’s majority owner, was arrested in October by the FBI and later indicted on 23 counts of mail fraud. He is now in the Seminole County Jail, accused of taking more than $8.9 million from more than 100 investors for his failed real-estate schemes. And the company has filed for Chapter 11 bankruptcy protection. The Magic’s marketing agreement with Hussain’s company was just one of hundreds of corporate sponsorships the National Basketball Association franchise has signed with area businesses during the past 18 years — but according to one team executive, the only one in memory to generate such a problem. Main Street USA, the team says, still owes the Magic more than $23,000 under the terms of their marketing agreement. Hussain, 42, and his company were promoting investments in a southwest Orlando condominium conversion and a real-estate investment trust that promised returns ranging from 14 percent to more than 30 percent, authorities say. Investors also were told, falsely, that their money would be federally insured against loss. Hussain, who lives in south Orange County, was arrested last month at Hartsfield-Jackson Atlanta International Airport as he waited to catch a flight to Costa Rica. ---- Besides other victims, Hussain, 42, targeted about a dozen Orange County Sheriff's Office employees who invested at least $1 million with his Main Street USA Inc. Hussain treated sheriff's employees to lunches and free resort-vacation stays. He also falsely promised to double their $100,000 investment in six months. Despite two arrests by Orange deputies in the past five years for failing to pay child support, the Guyanese native projected himself as a successful businessman riding the booming real-estate market in 2005. His main contact at the Sheriff's Office, Capt. Bernie Presha, was a retired agency spokesman and 29-year veteran who reported losing $350,000 to Hussain, according to bankruptcy court records. In addition to Presha, Hussain hired Chief Deputy Bryan Margeson — who recently retired after overseeing the sheriff's investigative divisions — to give speeches to potential investors at Hussain's 18,100-square-foot office building outside Kissimmee. Hussain also named former narcotics Sgt. James Hanton as vice president of investor relations and employed Hanton's wife, retired sheriff's administrative assistant Kim Hanton, in his Clermont office. Presha, Margeson and the Hantons did more than just work for Hussain; they also invested in his companies. Some Sheriff's Office employees lost $20,000 to $150,000 each, while other investors lost up to $420,000. Observers say it was Hussain's close ties with law enforcement that gave him confidence to continue his crimes. “From the people who he was hanging around with, he had stature,” said Undersheriff Malone Stewart, the agency's Number Two administrator who also heard the sales pitches at lunches with Presha and Hussain. “Unfortunately, they had been taken in.” The Sheriff's Office officials also influenced people outside the agency. “That was the main reason for me getting into this whole mess,” said Alan Cayo, a retired U.S. Army lieutenant colonel who estimates he invested more than $300,000 in Hussain's real-estate deals. “I figured if it was good enough for the sheriff's deputies, it was good enough for me.” Officials familiar with the investigation say Hussain was operating a typical Ponzi scam, named for a 1920s swindler who paid off early investors with money from new investors. Hussain was by most accounts an affable and successful businessman who earned the trust of even the most skeptical investors. Those who know Hussain are not surprised by his money-making potential. “He's never a follower. He's always a leader,” said one acquaintance who spoke on condition of anonymity. “He can do anything he puts his mind to.” Hussain is a permanent U.S. resident who speaks fluent English, Spanish and Portuguese. He moved to Central Florida in 1996 from New York City , and switched career paths from studying to be an orthopedic surgeon to real estate. Since then, court records show, he held various jobs including marketing director at Hemisphere Tour & Travel on Major Boulevard , manager of a Dollar General Store in the Conway area, and time-share salesman with Island One Resorts on Sand Lake Road . Founded in 2004 with a handful of employees, Main Street USA rode the Central Florida real-estate boom and grew to at least 180 employees. In an interview with a business publication, Hussain boasted that sales volume had exceeded $3 billion in 2005 and revenues had grown to $40 million. Earlier in 2006, however, signs surfaced that Hussain's business empire was about to crumble. From March to August 2006, five lawsuits for breach of contract were filed against Main Street USA, including two by former investors. Most investors were unaware of his pending lawsuits, but former company managers and employees said they were quitting after not being paid or falling out of favour with Hussain. Investors began complaining in the summer of 2006 about not receiving their interest payments, and by August, state and federal agents were investigating. A sentencing date has not been set. Presha, the former sheriff's spokesman, said he worked just two months for Hussain before trouble began. He has a simple explanation: “We invest money, hoping to make money, but sometimes we lose.” ---- Hussain, who lives in south Orange County, according to several people who know him, reportedly lived in various places around the world before Central Florida, including Saudi Arabia, Britain, Guyana, Costa Rica and Brazil. He told associates he was friends with the bin Laden family of Saudi Arabia; ---- Hussain's plea agreement with the U.S. Attorney's Office in Orlando spares him and the government the cost of a trial. His pledge to testify before any federal grand jury about others involved in his scheme could net him less than the 20 years recommended under sentencing guidelines. Besides other victims, Hussain, 42, targeted about a dozen Orange County Sheriff's Office employees who invested at least $1 million with his Main Street USA Inc. Hussain treated sheriff's employees to lunches and free resort-vacation stays. He also falsely promised to double their $100,000 investment in six months. Despite two arrests by Orange deputies in the past five years for failing to pay child support, the Guyanese native projected himself as a successful businessman riding the booming real-estate market in 2005. His main contact at the Sheriff's Office, Capt. Bernie Presha, was a retired agency spokesman and 29-year veteran who reported losing $350,000 to Hussain, according to bankruptcy court records. (Apr 19, 2012: Two young men whose bodies were found burning on an Orlando-area trail were identified by authorities as high school students Wednesday. The bodies of Nicholas Presha, 16, and Jeremy Stewart, 18, were found by bicyclists Sunday morning on an embankment on the Cady Way Trail near Metric Drive and Forsyth Road. Presha and Stewart were arrested in January for grand theft auto. Presha is the son of former Orange County Sheriff's Capt. Bernie Presha.) In addition to Presha, Hussain hired Chief Deputy Bryan Margeson — who recently retired after overseeing the sheriff's investigative divisions — to give speeches to potential investors at Hussain's 18,100-square-foot office building outside Kissimmee. Hussain also named former narcotics Sgt. James Hanton as vice president of investor relations and employed Hanton's wife, retired sheriff's administrative assistant Kim Hanton, in his Clermont office. Presha, Margeson and the Hantons did more than just work for Hussain; they also invested in his companies. Some Sheriff's Office employees lost $20,000 to $150,000 each, while other investors lost up to $420,000. Observers say it was Hussain's close ties with law enforcement that gave him confidence to continue his crimes. “From the people who he was hanging around with, he had stature,” said Undersheriff Malone Stewart, the agency's Number Two administrator who also heard the sales pitches at lunches with Presha and Hussain. “Unfortunately, they had been taken in.” The Sheriff's Office officials also influenced people outside the agency. “That was the main reason for me getting into this whole mess,” said Alan Cayo, a retired U.S. Army lieutenant colonel who estimates he invested more than $300,000 in Hussain's real-estate deals. “I figured if it was good enough for the sheriff's deputies, it was good enough for me.” Officials familiar with the investigation say Hussain was operating a typical Ponzi scam, named for a 1920s swindler who paid off early investors with money from new investors. Hussain was by most accounts an affable and successful businessman who earned the trust of even the most skeptical investors. Those who know Hussain are not surprised by his money-making potential. “He's never a follower. He's always a leader,” said one acquaintance who spoke on condition of anonymity. “He can do anything he puts his mind to.” Hussain is a permanent U.S. resident who speaks fluent English, Spanish and Portuguese. He moved to Central Florida in 1996 from New York City and switched career paths from studying to be an orthopedic surgeon to real estate. Since then, court records show, he held various jobs including marketing director at Hemisphere Tour & Travel on Major Boulevard , manager of a Dollar General Store in the Conway area, and time-share salesman with Island One Resorts on Sand Lake Road . Founded in 2004 with a handful of employees, Main Street USA rode the Central Florida real-estate boom and grew to at least 180 employees. In an interview with a business publication, Hussain boasted that sales volume had exceeded $3 billion in 2005 and revenues had grown to $40 million. Earlier in 2006, however, signs surfaced that Hussain's business empire was about to crumble. From March to August 2006, five lawsuits for breach of contract were filed against Main Street USA, including two by former investors. Most investors were unaware of his pending lawsuits, but former company managers and employees said they were quitting after not being paid or falling out of favour with Hussain. Investors began complaining in the summer of 2006 about not receiving their interest payments, and by August, state and federal agents were investigating. A sentencing date has not been set. Presha, the former sheriff's spokesman, said he worked just two months for Hussain before trouble began. He has a simple explanation: “We invest money, hoping to make money, but sometimes we lose.” ---- November 28, 2006 Florida-based Main Street USA mailed fliers to Orlando-area residents earlier this year “extending an invitation from the Magic, ‘in association with’ the company, to investment seminars,” but the franchise said that its marketing agreement with Main Street “did not include any team association with the company’s investments,” according to Jack Snyder of the ORLANDO SENTINEL. The prospective investors who attended the seminars at the Magic’s training facility in Maitland, Florida, watched a video intro by coach Brian Hill and “were rewarded with lower-bowl tickets to upcoming Magic games.” The team said that Hill’s participation “was a standard perk offered corporate sponsors” and that the company had the right to use meeting space in the training complex, but the sponsorship was terminated because Main Street USA “used the Magic’s name and logo in promotional material without their approval.” Magic COO Alex Martins said that sponsors “are required to obtain the team’s approval for all promotional material and any use of the Magic’s name.” Snyder notes Main Street Majority Owner Aleem Hussain was arrested in October and indicted on 23 counts of mail fraud. The company has filed for Chapter 11 bankruptcy, and the Magic said that it still owes “more than $23,000 under the terms of their marketing agreement” ---- Friend of Bin Ladan strikes in Orlando Mon Nov 6 2006 Savings of 100 at risk in investment flap The FBI has charged the owner of a bankrupt Kissimmee real-estate company with fraud. Eugene Ralph was looking for the right investment for many reasons, none more pressing than his three children's education. After attending a seminar at Main Street USA Inc., he was convinced he had found it. But now Ralph fears his life savings may be lost, the $66,000 swallowed by a bankrupt Kissimmee company whose owner has been arrested by the FBI and charged with fraud. Like at least 100 other investors, Ralph was told he could buy a newly converted condominium unit for as little as $150,000 but make no mortgage payments for two years. Main Street USA, in addition to paying the loan for 24 months, promised to use some of his unit's rental income to renovate the property inside and out. And some of his cash was to be placed in a real-estate-investment trust paying double-digit returns. Ralph, a chef at Walt Disney World, bought two units in The Villas at Waldengreen, an apartment complex in southwest Orlando that Main Street USA had converted to a condo project. He has never been inside his units; he doesn't even have the keys. But the two mortgages he signed are already in default. "I can't even sell them," said Ralph, who lives in Kissimmee with his wife and children. "I'm living on faith. Things are really tough." According to federal investigators, scores of other people were sold on the same investment scheme by Aleem Hussain, a former time-share salesman described by associates and investors alike as ambitious, charismatic and persuasive. Investigators are still trying to figure out just how much money investors gave to Main Street USA and where it all went. The FBI -- which arrested Hussain on Oct. 18 in Atlanta as he waited at the airport for a flight to Costa Rica -- estimates that $8 million is at stake. Initial estimates out of U.S. Bankruptcy Court in Orlando suggest that as much as $10 million is involved. Hussain, who lives in south Orange County, according to several people who know him, reportedly lived in various places around the world before Central Florida, including Saudi Arabia, Britain, Guyana, Costa Rica and Brazil. He told associates he was friends with the bin Laden family of Saudi Arabia; last year, Hussain bought an 18-acre estate in west Orange County previously owned by Khalil bin Laden, a brother of terrorist leader Osama bin Laden. The Khalil bin Laden family fled this country aboard a chartered jet out of Orlando International Airport less than two weeks after the Sept. 11, 2001, terrorist attacks in New York and Washington. ----- October 12, 2006: FBI is probing business: Condo converter Main Street USA, which is in Chapter 11, is cooperating with the agency The FBI is investigating Main Street USA, the Kissimmee real estate company that filed for bankruptcy protection late last month, a lawyer said Wednesday in U.S. Bankruptcy Court in Orlando. Main Street lawyer R. Scott Shuker said the company told investors, who he estimated put up as much as $10 million, that their money would go to a real estate investment trust and would be insured by the Federal Deposit Insurance Corp. There is no investment trust and no FDIC insurance, he said. "We're working with the FBI," Shuker told the court. Shuker filed the Chapter 11 bankruptcy petition on the behalf of Main Street USA. Main Street USA, through a subsidiary, last year bought Waldengreen Apartments in south Orlando and converted it to condos. About 100 of the 278 units were sold before the company ran out of money, according to Shuker. The company is 70 percent owned by Aleem Hussain and 30 percent by Alan Randel, who as the sole director authorized hiring Shuker and filing for bankruptcy court protection. Shuker proposed hiring Lewis B. Freeman of Miami, a forensic-accounting specialist, to find out where the investors' money went and to craft a plan to recover as much as possible. At Shuker's direction, Freeman had already started work. But Judge Arthur B. Briskman rejected the proposal, saying he had no choice under the law but to appoint a U.S. trustee to handle the case. Attorney Roy Kobert, representing lender Del Waldengreen LLC, which is owed about $14 million on the apartment property, supported hiring Freeman to quickly resolve problems. The casualty and liability insurance on the property has expired, and there are repairs that need to be made, both Kobert and Shuker said. Kobert said the lender was willing to use rents collected -- the only money found so far is about $70,000 in one account -- to purchase insurance. "Right now, the condominium project is a rudderless ship," Kobert said after the move to hire Freeman failed. Shuker said the initial investigation hasn't uncovered where the investors' money went. "Whether it went to insiders or extravagant living, we don't know," the attorney told the court. About 100 investors have been impacted by the company's failure, Shuker said. Some took loans out on their homes to put money into the so-called REIT and to buy condos. At least one investor put her life's savings into the venture, Shuker said. Condo buyers were told they wouldn't have to make mortgage payments for two years with apartment rents covering those costs. Several said the company made a few mortgage payments, then stopped. Shuker said he has talked to several condo owners who either are in default on their mortgages or expect to miss payments soon. The attorney said the remaining unsold condos -- the property was renamed The Villas at Waldengreen -- could generate as much as much $22 million if they can be sold for between $130,000 and $150,000. Other assets include an office building at 4555 Irlo Bronson Highway in Kissimmee. It was bought for $2 million and has a $1.6 million mortgage. The debtors also own 18 acres at State Road 50 and State Road 429 in west Orange County. That land proposed for a condo development was bought last year for $5.2 million. It has $3.5 million debt. Shuker said the company had big plans for condo conversions, hoping to buy five or six properties quickly. Main Street USA and two subsidiaries, PYC Development One LLC and PYC Development 4 LLC, listed $28 million in debt when they filed for bankruptcy court protection on Sept. 29. Judge Briskman indicated he expects a U.S. trustee to be appointed quickly to administer the case. ---- Orlando problem: An Orlando area developer, PYC Development One LLC, headed by Aleem Hussain, filed for bankruptcy last year. In 2005, it obtained $21.75 million in project financing from Fort Lauderdale investor Daniel Lambert for Villas of Waldengreen, a 276-unit condo conversion. According to Lambert's attorney, Daniel Utset, of Greenspoon Marder PA in Fort Lauderdale, the project, as presented to his client, was said to be 100 percent presold when he made the loans. In May or June 2006, Lambert learned that remaining units were not closing because banks declined to give buyers loans if renovations weren't completed, Utset said. Lambert entered into a forebearance agreement with Hussain that gave the developer until Oct. 1 to obtain new financing. "Unfortunately, the day before the loan matured, Hussain put PYC Development One LLC and three other corporations into bankruptcy," Utset said. Lambert is now seeking foreclosure against PYC in bankruptcy court. Far from a sellout, only about 100 units have closed, at prices ranging from $120,000 to $190,000, Utset said. Developer Hussain has additional problems not directly related to Villas at Waldengreen. He is being held in federal custody on fraud charges after he allegedly raised close to $10 million for a real estate investment trust that was never registered. ----- Lewis B. Freeman was the chapter 7 trustee for Main Street USA Main Street USA owned Airport hanger unit 122 at the Orlando Apopka Airport ----- ALEEM HUSSAIN: 12773 Newfield Dr, Orlando, Orange County, FL-32837 Aleem N Hussain is related to Aleena Khan, who is 52 years old and lives in South Richmond Hill, NY. Aleem N Hussain is also related to Kay Hussain, who is 47 years old and lives in Orlando, FL. Aleem N Hussain is also related to Kamal Hussain, who is 59 years old and lives in South Richmond Hill, NY. Aleem N Hussain is also related to Farida Hussain, who is 48 years old and lives in Winter Garden, FL. Aleem N Hussain is also related to Nazareth Hussain, who is 58 years old and lives in Boca Raton, FL ------ Alan spent 30 years in the travel industry as the head of some of the largest tour operations in the America. He subsequently obtained his Real Estate Brokers and Mortgage Brokers license and established a real estate business in Florida with offices in Orlando, Tampa, Boca Raton/Ft Lauderdale and Cape Coral. Over 200 agents have joined AmeriTeam Realty to take advantage of their 100% commission program. Agents at AmeriTeam receive an abundant number of leads, an unparelled website and unbeatable Broker support. Alan is a member of the NAR, Orange, Osceola, Lake/Sumter, Tampa Cape Coral, Palm Beach, Ft Lauderdale and Miami Boards of Realtors and holds an ePro certification. Alan Randel: worked for AmeriTeam Realty, Inc; AmeriTeam Realty Referral Associates, Inc; First Avenue Realty; America's HomeTown Realty, Inc; Mobile America, Inc; Credit Justice Services; Pro Negotiations. AmeriTeam Realty, Inc.: 1516 E Colonial Dr, Orlando, FL 32803 or 845 N. Garland Ave, Orlando, Florida 32801 (University of Maryland Baltimore, BA, Business 1956 – 1960) (University of Miami Liberal Arts/Business 1954 – 1956) He has connections to Russia. ------- Pinnacle Direct Funding Corp June 29, 2008: Heedless greed Why America's housing bubble swelled and burst WASHINGTON -- The black-tie party at Washington's swank Mayflower Hotel seemed a fitting celebration of the biggest American housing boom since the 1950s: filet mignon and lobster, a champagne room and hundreds of mortgage brokers, real estate agents and their customers gyrating to a Latin band. On that winter night in 2005, the company hosting the gala honored itself with an ice sculpture of its logo. Pinnacle Financial had grown from a single office to a national behemoth generating $6.5 billion in mortgages that year. The $100,000-plus party celebrated the booming division that made loans largely to Hispanic immigrants with little savings. Kevin Connelly, a loan officer who attended the affair, now marvels at those gilded times. At his Pinnacle office in Virginia, colleagues were filling the parking lot with BMWs and at least one Lotus sports car. In its hiring frenzy, the mortgage company turned a busboy into a loan officer whose income zoomed to six figures in a matter of months. "It was the peak. It was the embodiment of business success," Connelly said. "We underestimated the bubble, even though deep down, we knew it couldn't last forever." Indeed, Pinnacle's party would soon end, along with the nation's housing euphoria. The company has all but disappeared, along with dozens of other mortgage firms, tens of thousands of jobs on Wall Street and the dreams of about 1 million proud new homeowners who lost their houses. The aftershocks of the housing market's collapse still rumble through the economy, with unemployment rising, companies struggling to obtain financing and the stock market more than 10 percent below its peak last fall. The Federal Reserve has taken unprecedented action to stave off a recession, slashing interest rates and intervening to save a storied Wall Street investment bank. Congress and federal agencies have launched investigations into what happened. Seen in the best possible light, the housing bubble that began inflating in the mid-1990s was "a great national experiment," as one prominent economist put it -- a way to harness the inventiveness of the capitalist system to give low-income families, minorities and immigrants a chance to own their homes. But it also is a classic story of boom, excess and bust, of homeowners, speculators and Wall Street dealmakers happy to ride the wave of easy money even though many knew a crash was inevitable. 'A lot of potential' For David E. Zimmer, the story of the bubble began in 1986 in a high-rise office overlooking Lake Erie. An aggressive, clean-cut 25-year-old, armed with an M.B.A. from the University of Notre Dame, Zimmer spent his hours attached to a phone at his small desk, one of a handful of young salesmen in the Cleveland office of the First Boston investment bank. No one took lunch -- lunch was for the weak, and the weak didn't survive. Zimmer gabbed all day with his clients, mostly midsize banks in the Midwest, persuading them to buy a new kind of financial product. Every once in a while, he'd hop a small plane or drive his Oldsmobile Omega out for a visit, armed with charts and reports. The products, investments based on bundles of residential mortgages, were so new he had to explain them carefully to the bankers. "There was a lot of education going on," Zimmer said. "I realized, as a lot of people did, this was a brand new segment of the market that had a lot of potential, but I had no idea how big this would get." Zimmer joined the business as enormous changes were taking hold in the mortgage industry. Since World War II, community banks, also called thrifts or savings and loans, had profited by taking savings deposits, paying their customers interest and then lending the money at a slightly higher rate for 30 years to people who wanted to buy homes. The system had increased homeownership from fewer than 45 percent of all U.S. households in 1940 to nearly 65 percent by the mid-'60s, helped by government programs such as G.I. loans. In 1970, when demand for mortgage money threatened to outstrip supply, the government hit on a new idea for getting more money to borrowers: Buy the 30-year, fixed-rate mortgages from the thrifts, guarantee them against defaults, and pool thousands of the mortgages to be sold as a bond to investors, who would get a stream of payments from the homeowners. In turn, the thrifts would get immediate cash to lend to more home buyers. Wall Street, which would broker the deals and collect fees, saw the pools of mortgages as a new opportunity for profit. But the business did not get big until the 1980s. That was when the mortgage finance chief at the Salomon Brothers investment bank, Lewis Ranieri -- a Brooklyn-born college dropout who started in the company's mailroom -- and his competitor, Laurence Fink of First Boston, came up with a new idea with a mouthful of a name: the collateralized mortgage obligation, or CMO. The CMO sliced a pool of mortgages into sections, called "tranches," that would be sold separately to investors. Each tranche paid a different interest rate and had a different maturity date. Investors flocked to the new, more flexible products. By the time Zimmer joined First Boston, $126 billion in CMOs and other mortgage-backed securities were being sold annually. After a few years at First Boston, Zimmer eventually ended up at Prudential Securities on the tip of Manhattan near the World Trade Center, selling increasingly exotic securities based on not only mortgages but also credit card payments and automobile loans. As Wall Street's securities grew more complex and lucrative, so did the mathematics behind them. Zimmer would walk over to Prudential's huge "deal room." It was filled with quantitative researchers -- "quants" -- a motley crew of math wonks, computer scientists, Ph.D.s and electrical engineers. The quants built new mathematical models to price the securities, determining, for example, what borrowers would do if interest rates moved a certain way. The industry, which came to be known as structured finance, grew steadily. Zimmer grew with it. He got married, raised two kids and climbed to the level of senior vice president, a top salesman at Prudential. Zimmer's clients through the 1990s were mutual funds, pension funds and other big investors who dealt in big numbers: sometimes hundreds of millions of dollars. He'd get up at 4:30 a.m., be out of the house by 5, catch the 5:30 train from Princeton, N.J., be locked to his desk for 10 hours, devouring carbs -- pizza, lasagna -- and consumed by stress, but thinking nonetheless, "It was so much fun." 'Extraordinary' boom April 14, 2000. A rough day on Wall Street. The technology-laden Nasdaq stock index, which had more than doubled from January 1999 to March 2000, falls 356 points. Within a few days, it will have dropped by a third. Although the business of structured finance grew during the 1990s, Internet companies drew the sexiest action on the Street. When that bubble popped, average Americans who had invested in the high-flying stocks saw their savings evaporate. Consumer and business spending began to dry up. Then came the 2001 terrorist attack, which brought down the twin towers, shut down the stock market for four days and plunged the economy into recession. The government's efforts to counter the pain of that bust soon pumped air into the next bubble: housing. The Bush administration pushed two big tax cuts, and the Federal Reserve, led by Alan Greenspan, slashed interest rates to spur lending and spending. Low rates kicked the housing market into high gear. Construction of new homes jumped 8 percent in 2002, and prices climbed. By that November, Greenspan noted the trend, telling a private meeting of Fed officials, "Our extraordinary housing boom … financed by very large increases in mortgage debt, cannot continue indefinitely into the future," according to a transcript. The Fed nonetheless kept to its goal of encouraging lending and in June 2003 slashed its key rate to its lowest level ever -- 1 percent -- and let it sit there for a year. The average rate on a 30-year fixed mortgage fell to 5.8 percent in 2003, the lowest since at least the 1960s. Greenspan boasted to Congress that "the Federal Reserve's commitment to foster sustainable growth" was helping to fuel the economy, and he noted that homeownership was growing. There was something very new about this housing boom. Much of it was driven by loans made to a new category of borrowers -- those with little savings, modest income or checkered credit histories. Such people did not qualify for the best interest rates; the riskiest of these borrowers were known as "subprime." Most subprime loans gave borrowers a low "teaser" rate for the first two or three years, with the monthly payments ballooning after that. Because subprime borrowers were assumed to be higher credit risks, lenders charged them higher interest rates. That meant that investors who bought securities based on pools of subprime mortgages would enjoy higher returns. Credit-rating companies, which investors relied on to gauge the risk of default, gave many of the securities high grades. So Wall Street had no shortage of customers for subprime products, including pension funds and investors in places such as Asia and the Middle East. Government-chartered mortgage companies Fannie Mae and Freddie Mac, encouraged by the Bush administration to expand homeownership, also bought more pools of subprime loans. One member of the Fed watched the developments with increasing trepidation: Edward Gramlich, a former University of Michigan economist who had been nominated to the central bank by President Clinton. Gramlich would later call subprime lending "a great national experiment" in expanding homeownership. In 2003, Gramlich invited a Chicago housing advocate for a private lunch in his Washington office. Bruce Gottschall, a 30-year industry veteran, took the opportunity to pull out a map of Chicago, showing the Fed governor which communities had been exposed to large numbers of subprime loans. Homes were going into foreclosure. Gottschall said the Fed governor already "seemed to know some of the underlying problems." 'Half-truths and lies' The young woman who walked into Pinnacle's Vienna, Va., office in 2004 said her boyfriend wanted to buy a house near Annapolis, Md. He hoped to get a special kind of loan for which he didn't have to report his income, assets or employment. Mortgage broker Connelly handed the woman a pile of paperwork. On the day of the settlement, she arrived alone. Her boyfriend was on a business trip, she said, but she had his power of attorney. Informed that for this kind of loan he would have to sign in person, she broke into tears: Her boyfriend actually had been serving a jail term. Not a problem. Almost anyone could borrow hundreds of thousands of dollars for a house in those wild days. Connelly agreed to send the paperwork to the courthouse where the boyfriend had a hearing. As it happened, he was freed that day. Still, Connelly said, "That was one of mine that goes down in the annals of the strange." Strange was becoming increasingly common: loans that required no documentation of a borrower's income. No proof of employment. No money down. "I was truly amazed that we were able to place these loans," Connelly said. Lenders saw subprime loans as a safe bet. Home prices were soaring. Borrowers didn't have to worry about their payments ballooning -- they could sell their homes at any time, often at a hefty profit. Jeffrey Vratanina, one of Pinnacle's co-founders, said Wall Street wanted to buy more and more of the mortgages, regardless of their risk, to pool them and then sell them to investors. "Quite candidly, it all boils down to one word: greed," he said. Warning sign Jan. 31, 2006. Greenspan, celebrated for steering the economy through multiple shocks for more than 18 years, steps down as Fed chairman. Greenspan puzzled over one piece of data a Fed employee showed him in his final weeks. A trade publication reported that subprime mortgages had ballooned to 20 percent of all loans, triple the level of a few years earlier. "I looked at the numbers … and said, 'Where did they get these numbers from?' " Greenspan recalled in a recent interview. He was skeptical that such loans had grown in a short period "to such gargantuan proportions." Greenspan said he did not recall whether he mentioned the dramatic growth in subprime loans to his successor, Ben Bernanke. Bernanke, a reserved Princeton University economist unaccustomed to the national spotlight, came in to the job wanting to reduce the role of the Fed chairman as an outsized personality, as Greenspan had been. Two weeks into the job, Bernanke testified before Congress that it was a "positive" that the nation's homeownership rate had reached nearly 70 percent, in part because of subprime loans. "If the housing market does slow down," Bernanke said, "we'll want to see how strong the subprime mortgage market is and whether or not we'll see any problems in that market." Sudden defaults The mortgage executives who gathered in a blond-wood conference room in southern California studied their internal reports with growing alarm. More and more borrowers were falling behind on their monthly payments almost as soon as they moved into their homes, indicating that some of them never really had the money. "Nobody had models for that," said David E. Zimmer, then one of the executives at People's Choice, a subprime lender based in Irvine, Calif. "Nobody had predicted people going into default in their first three mortgage payments." The housing boom had powered the U.S. economy for five years. Now, in early 2006, signs of weakness within the subprime industry were harder to ignore. People with less-than-stellar credit who had bought homes with adjustable-rate mortgages saw sharp spikes in their monthly payments as their low initial teaser rates expired. As a result, more lost their homes; data showed that 70 percent more people faced foreclosure in 2005 than the year before. Housing developers who had raced to build with subprime borrowers in mind now had fewer takers. People's Choice was feeling the slowdown, too. It had been generating about $500 million in loans each month, but profit fell by half in the first quarter of 2006, according to documents filed for an initial public offering that was later abandoned. Zimmer saw the mounting problems as head of the department that worked with Wall Street to package mortgage loans into securities to be sold to investors. Two decades earlier, Zimmer had been among the young salesmen pitching early versions of mortgage-backed securities. He had stayed in the field, becoming a top salesman at Prudential Securities before moving on to help run a big investment fund that specialized in those exotic products. Now he was trying to make sure People's Choice could continue to raise money by pooling subprime loans. Zimmer and some other executives urged the company to tighten its lending standards. That could lower the rate of defaults. And the better the quality of the loans, the more investors would want them. But "there was always push-back" from sales executives when he advocated more conservative lending, Zimmer said. Well over half of the loans made by People's Choice -- and most other big lenders -- came not from its own employees but from independent mortgage brokers. If the company stopped taking the brokers' riskier loans, the brokers might take both those and their higher-quality loans elsewhere. What's more, People's Choice's own loan sales force worked largely on commissions from loans they made. "There were times when voices would get raised," Zimmer said. A colleague would pound the table, asking: Why don't you see this? "I was not," he said, "a popular person." As his team analyzed the individual loan files, Zimmer said, he was struck by evidence of fraud, such as doctored bank statements. Mortgage brokers forged borrowers' signatures and pumped up their income, he said. People seeking to buy and sell a home for a quick profit lied that they were going to live in the home -- qualifying for a lower interest rate. But People's Choice calculated that it would have been too complicated and expensive to go after fraud, Zimmer said. Even as People's Choice sought to preserve its business, the housing climate continued to deteriorate. Many borrowers were defaulting so quickly that the company did not have time to pool those mortgages and sell them off as securities. What else is at risk? Feb. 7, 2007. A few hours separate startling announcements. HSBC, a 142-year-old London-based bank that was one of the largest subprime lenders, says it must set aside $10.6 billion to cover expected losses. Then another industry giant, New Century Financial, says it will have to redo almost a year of accounting to reflect the depth of its losses. In subsequent weeks, the stock values of many subprime lenders plunged, and others filed for bankruptcy protection. Construction of new homes hit its lowest point in nearly a decade. On Feb. 27, the Dow Jones industrial average fell 416.02 points, the seventh-largest point loss ever. At the Federal Reserve, officials remained unruffled. They privately calculated that even if subprime losses were severe, the dollars involved would be no more than a blip in the overall economy. As late as June, Fed Chairman Bernanke spoke via satellite to a conference of international economic officials in South Africa, predicting, "The troubles in the subprime sector seem unlikely to seriously spill over to the broader economy or the financial system." But in financial circles, word circulated about trouble inside one big New York investment bank. Bear Stearns had two hedge funds that invested heavily in securities backed by subprime mortgages. Hedge funds, which handle the money of wealthy investors, are lightly regulated and don't have to report much about their operations to investors. So it was a surprise to Wall Street when the funds appeared on the brink of collapse, forcing Bear Stearns to lend one of them billions of dollars to keep it afloat. The question in many boardrooms became: What else is at risk? 'This is a tidal wave' Debate among People's Choice executives gave way to questions about the subprime lender's own survival. The investment banks that had bought subprime mortgages to pool them were now demanding that lenders like People's Choice take back the mortgage loans that had gone into default, arguing that misrepresentations had been made about the borrowers. And lenders had to take them; they couldn't risk further damaging their relationship with the banks. "Now the whole industry is starting to choke on the volume of loans put back to them," Zimmer said. People's Choice turned around and tried to sell off the bad loans but took "a huge hit," he said. The company had been scrambling to further tighten its lending standards, getting rid of mortgages with no down payment and requiring borrowers to have stronger credit histories. But "by then, it was too late," Zimmer said. "This is a tidal wave." Finally, banks that had been lending cash to keep People's Choice in business cut off the company. "When that happens, you're done," Zimmer said. "It's the kiss of death." Secret war room July 19, 2007. Bernanke tells Congress: "Rising delinquencies and foreclosures are creating personal, economic and social distress for many homeowners and communities -- problems that likely will get worse before they get better." Bernanke and others at the Fed still did not see how severely the troubles would cascade through the economy. The chairman did warn Congress of "significant financial losses" in the subprime industry, saying there were "implications of this for financial markets." He was right. Within days, Countrywide Financial, the nation's largest mortgage lender, announced that its profit had fallen by a third as more homeowners defaulted. The Bear Stearns hedge funds that had invested heavily in the subprime market went under. The largest bank in France, BNP Paribas, suspended three funds that held mortgage-backed securities. Then the credit raters -- Moody's, Standard & Poor's and Fitch, which over time had become high priestesses of the global capital markets -- astonished investors by abruptly downgrading many subprime-backed securities that they had previously blessed. The rating companies came under criticism from investors who questioned whether they had issued rosy assessments because they had been paid by the banks whose securities they rated. The credit raters responded that they have procedures in place to prevent conflicts of interest. Banks and investors also questioned whether there were hidden weaknesses in the broader market for mortgage-backed securities and other complex investments, such as collateralized debt obligations, or CDOs, which combined various kinds of debt. As a result, banks, anticipating their own losses, began to hoard cash and refused to lend. The fallout: A major part of the machinery of U.S. capitalism -- the $28 trillion credit market that ensures big companies can pay their employees and buy equipment by taking out loans -- nearly shut down. In August, the credit crunch sent the stock market into its most volatile period since the Enron days. The Fed pumped money directly into the markets, loaning to banks and accepting as collateral the mortgage-backed securities that few investors wanted anymore. At the Treasury Department, Robert Steel, undersecretary for domestic finance, called Wall Street executives, housing agencies and the Fed for counsel but particularly sought out two men who had shown keen insight before the collapse. One was Edward Gramlich, who had been warning for years that subprime borrowers were vulnerable to overextending themselves. He had since retired from the Fed and had just published a book, Subprime Mortgages: America's Latest Boom and Bust. Gramlich told Steel that borrowers went beyond their means and that lenders encouraged it -- and now homeowners needed counselors to avert foreclosures. Steel also telephoned Lewis Ranieri, a pioneer in mortgage-backed securities. Ranieri told the Treasury official that many of the securities were actually in good shape but banks couldn't unload them because of the perception that they had no value. Fed officials, in a state of growing alarm by late August, maintained an outward calm at their annual symposium at Jackson Hole, Wyo. But secretly, Bernanke and other top Fed officials met several times a day in a makeshift war room where they had installed secure telephone lines. Bernanke employed the Socratic style, going around the table, asking his Fed team how the central bank should respond to the crisis, according to some of those present. How aggressive should the Fed be in using its influence on interest rates -- a broad sword that affects the entire economy? What risk did the credit problems pose to average Americans? After one long discussion, the Fed officials went downstairs to the public conference, where one economist, John Taylor of Stanford University, was criticizing the Greenspan regime for having kept interest rates so low for too long. Gramlich, too sick to attend the conference after being diagnosed with leukemia, had his speech read by a colleague: "The subprime market, for all its warts, is a promising development, permitting low-income and minority borrowers to participate in credit markets." But, he added, "a majority of loans are made with very little supervision." In the coming weeks, the Fed began aggressively cutting interest rates to encourage banks to lend. In October, the Bush administration announced a Gramlich-style idea, Hope Now, an alliance of counselors, lenders and other industry participants who would work to help borrowers avoid foreclosure by renegotiating mortgage terms. But it was clear that the trouble was not over when some of the nation's biggest banks began reporting unexpectedly large losses. In his final weeks, Gramlich followed the unfolding financial crisis from his home in Washington. He was resigned to the fact that he couldn't play a larger role. Five days after his speech was read, he died. What about the payroll? Jackie Pons, the affable superintendent of the Leon County school district in Tallahassee, Fla., was worried about his $30 million. One Wednesday last November, he got on a conference call with Florida officials and financial advisers representing cities, towns and school boards throughout the state. The officials hoped to calm nerves. Localities had started to pull billions of dollars out of their accounts in a state-run investment pool, panicking that the fund was vulnerable to the financial alarm sweeping the nation over the collapse of the housing market. After years of giving out mortgages to millions of people with less-than-stellar credit histories, lenders were imploding as subprime borrowers defaulted. The contagion spread quickly to Wall Street, which had packaged those risky loans and sold the securities to big investors. Investors, in turn, wondered whether the problems in the financial system would extend beyond subprime-backed securities to investments backed by conventional mortgages -- or even other assets. In Florida, the crisis was about to filter down to the lives of people who had no obvious connection to the financial world. Officials in charge of the state-run investment pool had for months maintained that the money was safe. "I want you to know I have no serious concerns at this time about any of our exposures," the then-head of the fund wrote in an e-mail to the office of Florida's chief financial officer. But now state officials were trying to stave off a run on the fund by officials like Pons. His district was considering withdrawing the approximately $30 million it kept in the pool, which served as a kind of money-market account for localities to cover their payrolls and other operating costs. On the conference call, state officials assured the gathering that the fund had lost only a fraction in value and that everything was fine. "I believed them," Pons said. "I took them for their word." The next day, state officials abruptly shut down the pool to put an end to the run. About 1,000 localities couldn't withdraw their money. Pons wondered where he would find $10 million overnight to meet the next day's monthly payroll. "I'm sitting there going, 'Whoa.' We're sitting here with no access to dollars," he said. The superintendent knew that many of his employees lived paycheck to paycheck. "This is like, no, this is America, these are our dollars, they can't stop us, we're going to miss a payroll," he said. "This is what you read about in other countries." The pool, after all, was supposed to be safe, investing public money in such boring instruments as Treasury bills. But as interest rates fell in recent years, the pool began moving toward higher-yielding, complex investments such as short-term corporate debt. "The pool was certainly trying to get reasonable returns within the boundaries of being a money-market fund," said Robert Milligan, a retired Marine lieutenant general who is interim executive director of the board overseeing Florida-run funds. Milligan said the pool invested only in securities with high grades from credit-rating companies. Only a small percentage was invested in mortgage-backed securities, and an even tinier amount -- 0.03 percent -- was in subprimes. But Florida was swept up in the national frenzy as some of its mortgage-backed investments were downgraded. By that Thursday evening, Pons was attending a community schools buffet dinner, not eating, still wondering how he would pay his teachers the next day. He stepped out on the patio, a cell phone to each ear -- one silver for official business, the other blue usually for personal calls -- talking to the school board attorney and other officials. Pons, born and raised in Tallahassee, knew that the head of the local bank lived in town. He called the banker at home. Thomas A. Barron, president of Capital City Bank, was at dinner with his family. He took the call at his antique mahogany desk in his home office, confronted by a situation he'd never faced in 34 years of banking: "Not that kind of money and not overnight and not just to make payroll," he said. But Barron reckoned the school district was good for the money. He authorized the loan on the spot, calling his lawyers and bankers to get the paperwork going. The next morning, Pons and the bank president signed for a $10 million week-long loan. It cost the school district $13,000 in interest. A bank executive stood in line at the teller window to deposit the funds in the school account. Pons felt hugely relieved; his teachers would get paid. He didn't even mind when he became the butt of a joke around town: "If you need $10 million," people would tell him, "don't call me." Loaded for Bear Jan. 10, 2008. In his first public remarks of the year, Bernanke acknowledges that the problems that had begun in the subprime market now "affected the prospects for the broader economy." Unemployment was rapidly rising, hitting its highest point -- 5 percent -- since November 2005. On Jan. 19, a Saturday, a weekend of urgent conference calls among Fed officials began. Bernanke and his colleagues agreed that the central bank needed to sharply cut interest rates to stimulate the economy. But they debated whether a big cut before a routine meeting -- only a week and a half later -- would make the Fed seem as if it were simply responding to declining stock markets. Bernanke implored the group: If it's time to act, the Fed should act. Two days later, on Martin Luther King Jr. Day, stock markets throughout the world suffered some of their largest drops since Sept. 11, 2001. Meeting by videoconference, the Fed voted to cut its key rate three-quarters of a point, the biggest single-day cut in nearly a quarter-century, and announced the move before U.S. markets opened Tuesday. The Fed continued to lower rates but couldn't stop the economy's plunge. More banks reported losses. Meanwhile, President Bush, working with Congress, signed into law a $168 billion economic stimulus package, offering tax rebate checks. On March 12, concern intensified about the soundness of one important financial player with heavy exposure to subprime securities: Bear Stearns. The chief executive of the New York investment bank, Alan Schwartz, tried to calm investors by going on television to say his firm had a $17 billion cash cushion. Overnight, though, Bear Stearns' lenders cut off the company. Customers demanded their cash. Bankruptcy was imminent. On March 13, Schwartz called Jamie Dimon, chief executive of J.P. Morgan Chase, who answered on a special cell phone reserved for his three daughters and few others. Schwartz wanted J.P. Morgan to buy Bear Stearns. Dimon wouldn't agree without more time but promised to work on the problem. He dispatched hundreds of J.P. Morgan employees back to the office to review Bear Stearns' books. As he learned about the unfolding crisis, Bernanke feared a global economic collapse if Bear Stearns went under. Money-market funds where Americans deposit billions of dollars in savings had lent money to Bear Stearns. And the company's important role in the financial markets -- trading countless securities for big investors -- would come to a halt. Other investment banks, Bernanke worried, would be next. The Fed wanted to get cash to Bear Stearns to keep it afloat. By 7 a.m. the next day, the central bank had helped arrange a loan to Bear Stearns, the first time since the Great Depression that the Fed had intervened with public money on behalf of an institution other than an ordinary commercial bank with regular deposits. Over the weekend, Treasury Secretary Henry Paulson helped manage negotiations over whether J.P. Morgan should buy Bear Stearns. That Sunday night, J.P. Morgan agreed to buy Bear Stearns but only if the Fed agreed to take $30 billion of mortgage-backed securities on Bear Stearns' books, putting the risk of default on taxpayers. The Fed, believing it had no better option, accepted the deal. J.P. Morgan announced it would pay $236 million for Bear Stearns -- or $2 per share -- 99 percent below its value a year earlier. Paulson wanted to keep the sale price low so it wouldn't seem as though the government were bailing out Bear Stearns. Within a few days, Bear Stearns had negotiated the price up to $10. Critics still argued that the Fed took unprecedented action to bail out a private financial firm, raising the likelihood that other firms would be emboldened to take similar risks. 'Return to basics' Four business days after shutting down the Florida investment pool, the state reopened it, and by late March, localities had pulled about $17 billion from their accounts, some two-thirds of the pool's total. The localities have limited access to their money; they pay a penalty if they take out more than a set amount. Milligan, the interim head of the state-run funds, maintains that the pool's problems were exaggerated. "There's certainly nothing wrong with investing in mortgage-backed investments," he said. But the fund is no longer investing in them. That's not good enough for Pons, the Leon County superintendent. "Everybody was chasing the interest rates," he said. Pons has been pulling out funds from the pool, and he plans to get out the rest -- about $20 million -- as restrictions permit. His new strategy: He's parked the school district's money over at Capital City Bank, where his friends gave him the emergency loan. "So I can get to it," he said. History rewritten By April, it was widely feared that the United States was falling into recession. Bernanke, appearing before Congress, would allow only that a "recession is possible." Some of the nation's biggest banks have lost billions of dollars. Some forecasters predict that 3 million more homes could go into foreclosure in coming years. The housing problems are often concentrated in low-income, high-immigration neighborhoods. At the Fed, Bernanke has been working to expand the agency's role in monitoring how Wall Street bundles mortgages. The central bank is closely studying a wider range of financial institutions than ever before. Meanwhile, the Fed has so far this year provided vast sums in short-term loans to squeezed banks. The Fed chairman remains convinced that the central bank's role in rescuing Bear Stearns helped avert a global financial disaster. Some economists have said that the Fed played a role in creating the problem. "The U.S. was too ambitious in trying to prop up growth in the early 2000s through low interest rates, through aggressive fiscal policy, in ways that weren't sustainable," said Kenneth Rogoff of Harvard University, a former chief economist for the International Monetary Fund. Greenspan, who was famously opaque while presiding over the Fed during the bubble, bluntly defends his tenure. "The prevailing notion is that the bubble is indigenous to the United States, is caused by Federal Reserve policy and if the people at the Federal Reserve, especially the chairman, were sensible, this thing would not have happened," Greenspan said in an interview. "History is being rewritten, and I will tell you this is not the history that I remember." His view is that long-term global interest rates, not the short-term rates that the Fed controls, drove housing bubbles around the world in the past decade. 'Everybody's culpable' David E. Zimmer began putting out job feelers after being laid off as an executive at People's Choice, the subprime lender, interviewing with hedge funds and others to see whether there was any interest in his expertise in structured finance. There wasn't. He blamed it on the falling-knife syndrome: The market for subprimes made firms wary of investing in the field and hiring someone like him who specialized in it. "Who wants to catch the knife?" he said. Zimmer, though, figured there was a need for his kind of specialized knowledge. He started a consulting business, Princeton Structured Finance Analytics Group, assessing the value of institutional investors' holdings in mortgages and the underlining loans in securities. Already, he said, there's a lot of interest from accounting firms and others. Looking back on the past few years, he said: "Everybody's culpable in this -- everybody -- Wall Street, investors, originators, brokers. At every point in the process, something broke down." He added, "Do you want to get philosophical? Are people self-interested? Absolutely. It's what makes capital markets efficient. As we've learned, it's also what makes them dangerous." "It was the peak. It was the embodiment of business success. We underestimated the bubble, even though deep down, we knew it couldn't last forever." ---------- Category:Characters Category:All